IKONICS Corporation

2017 Annual Report

Through processes based in photochemistry, abrasive etching, chemical etching and other technologies, IKONICS participates in a diverse spectrum of markets. From traditional and high-tech screen printing, to decorative and industrial etching.

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Page 1 of 46

Letter to Shareholders The year was adversely affected by a temporary slowdown of orders from our largest aerospace customer due to a manufacturing problem. The problem, which was internal to that customer, was resolved in the fourth quarter. Sales for IKONICS in the fourth quarter of 2017 reached an all-time quarterly record. Indications are that this trend will continue, setting a strong pace for 2018. My goal has been to diversify our business to become less dependent on screen-print chemistry and decorative sand blasting and to enter larger and more dynamic markets. These efforts are starting to bear fruit. Aerospace, in spite of the temporary 2017 problem, is a growing part of our business, as are automotive and electronics. Late last year we entered the robust dye-sublimation market with a patent-pending product, and I anticipate important new products will be launched in 2018. Earnings for 2017 showed a loss of $226,000, although earnings for the fourth quarter of 2017 were $0.19 per diluted share. Sales were down 2% for the year, but the lower sales were partially offset by a 102% increase in sales to the automotive industry and a stocking order for our new SubTHAT! dye-sublimation products. The list of products on the cover page of this report indicates our product range. Some of these are well established while others, such as electronics, are just beginning to gain traction. All of these products are based on our four technology platforms: UV chemistry; film coating and construction; industrial inkjet printing, and precision abrasive etching – a technology mix that I believe is unique for a company our size. Where we can utilize a mix of these technologies in a product, such as with our automotive offering, I believe we have a competitive advantage, a strong IP positon, and high margins. Other positive trends for 2018, including but not limited to the reduction in the corporate federal income tax rate from 35% to 21%, improved distribution for exports and the continuance of a cost-reduction initiative, which already has had a positive effect on fourth- quarter results, also should contribute to growth and profits in 2018. William C. Ulland Chairman, President & CEO March 23, 2018

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